FRANKFURT Volkswagen's (VOWG_p.DE) development of software to cheat diesel-emissions tests was an open secret in its engine development department, Germany's Sueddeutsche Zeitung newspaper said on Friday, citing results from VW's internal investigation.

Many managers and staff dealing with emissions problems in the department knew of or were involved in developing the "defeat devices", said the newspaper, which researched the matter with regional broadcasters NDR and WDR.

A culture of collective secrecy prevailed within the department, where the installation of the defeat software that would cause the carmaker's biggest ever corporate crisis was openly discussed as long ago as 2006, Sueddeutsche said.

But it said there were exceptions: a whistleblower, who was himself involved in the deception and has been giving evidence to investigators hired by Volkswagen, alerted a senior manager outside the department in 2011.

This manager, however, did not react, the newspaper said.

Staff members in engine development felt pressure from the management board to find a cost effective solution to develop clean diesel engines for the U.S. market.

Rather than telling Volkswagen's management board the rules could not be adhered to, staff members in engine development decided to push ahead with manipulation, Sueddeutsche reported.

"Within the company there was a culture of 'we can do everything', so to say something cannot be done, was not acceptable," Sueddeutsche Zeitung said, quoting the VW internal report which included testimony from a staff member who took part in the fraud.

"Instead of coming clean to the management board that it cannot be done, it was decided to commit fraud," Sueddeutsche reported in its Saturday edition.

Staff in engine development took comfort from the fact that regulators would not be able to detect the fraud using conventional examination techniques, the paper further said.

Engine management software delivered by Bosch was then manipulated in Wolfsburg, where Volkswagen has its headquarters, Sueddeutsche Zeitung said.

Manipulation started in November 2006, Sueddeutsche Zeitung said.

Volkswagen has said that to the best of its knowledge only a small circle of people knew about the manipulation, which Europe's biggest carmaker admitted to U.S. environmental authorities in September last year.

It has said it is not aware of any involvement by top management or supervisory board members in the affair, which toppled its chief executive last year and is likely to cost billions of dollars for recalls, technical fixes and lawsuits.

A Volkswagen spokesman declined to comment on Friday on what he called "speculation", saying the investigation - for which Volkswagen has hired U.S. law firm Jones Day - was continuing.

Contacted by Reuters late on Friday, Jones Day in Munich said its spokespeople had left for the day.

The Sueddeutsche Zeitung said the whistleblower was being investigated by prosecutors in Braunschweig.

Braunschweig prosecutors did not immediately return calls from Reuters late on Friday.

Volkswagen initiated an amnesty programme last year for witnesses who could shed light on the scandal, promising not to fire employees who came forward with information by Nov. 30.

The carmaker plans to give the first public results of its investigation at the annual shareholders' meeting in April.